BBVA Research – Mexico Economic Outlook 4Q18 / 1
Mexico
Economic Outlook
Fourth quarter 2018
BBVA Research – Mexico Economic Outlook 4Q18 / 2
01Global economy
BBVA Research – Mexico Economic Outlook 4Q18 / 3
Positive global momentum continues, although the risks are
intensifying
Robust global growth, albeit more
moderate and less synchronised
The strength of the US economy
contrasts with moderation in China and
Europe
Divergence of US and EU monetary
policy from 2019
The Fed ends its cycle of
increases, while the ECB starts its
cycle and prepares to withdraw
liquidity
Increased financial tensions
in emerging markets
With clear differentiation among
countries, the most financially
vulnerable of them facing abrupt
adjustments in their economies
Global risks are intensifying
Added to protectionism and the Fed’s
normalisation are rising tensions in
emerging countries and increased
uncertainty in Europe
Trade war between the US and China
Impact still limited, but could increase if new
measures are taken and confrontation continues
BBVA Research – Mexico Economic Outlook 4Q18 / 4
Moderation of global growth
Slight moderation of global growth
towards rates slightly below 1%
QoQ in 2H18
Activity data remain solid, but
have lost momentum, probably as
a result of the increase in
protectionism weighing down on
confidence, trade and investment
Apart from volatility, world trade
has not been badly affected so far
World GDP growth(Forecasts based on BBVA-GAIN, % QoQ)
Source: BBVA Research
CI of 20% CI of 40% CI of 60%
Growth estimate Average for period
0,4
0,6
0,8
1,0
1,2
dic
.-1
3
jun
.-1
4
dic
.-1
4
jun
.-1
5
dic
.-1
5
jun
.-1
6
dic
.-1
6
jun
.-1
7
dic
.-1
7
jun
.-1
8
dic
.-1
8
BBVA Research – Mexico Economic Outlook 4Q18 / 5
The downward revision of growth in emerging economies explains
the expected moderation of global growth in 2019
Source: BBVA Research
BBVA Research – Mexico Economic Outlook 4Q18 / 6
02Mexico, Economic
Activity
BBVA Research – Mexico Economic Outlook 4Q18 / 7
GDP(% change, quarterly, annualised)
IGAE (Global Economic
Activity Index)(Index 2013/01 = 100)
More dynamic GDP growth in 3Q18, driven by services and
manufacturing
Source: BBVA Research / INEGI
(National Statistics Institute)
Industrial activity(Index 2013/01 = 100)
2.2
3.7
2.5
3.4
1.4
-2.7
3.9
2.22.6
5.2
1.5
4.4
2.2
4.3
5.2
-0.4
2.41.9
4.9
4.0
1.1
2.2
-0.3
3.3
4.0
-0.6
3.2
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
80
85
90
95
100
105
110
115
120
125
90
95
100
105
110
115
120
125
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Total Industry Services Primary Sector (right axis)
70
75
80
85
90
95
100
105
110
115
120
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Total Mining Utilities Construction Manufacturing
BBVA Research – Mexico Economic Outlook 4Q18 / 8
Gross Fixed Investment(Index 2013/01 = 100)
Construction
(Index 2013/01 = 100)
Private investment remains weak; possible delay in its recovery
Source: BBVA Research / INEGI
Gross Fixed Investment(Index 2013/01 = 100)
90
95
100
105
110
115
120
125
130
135
140
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Total Machinery and Equipment - National
Machinery and Equipment - Imported Construction
85
90
95
100
105
110
115
120
125
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Residential Non-residential
60.0
70.0
80.0
90.0
100.0
110.0
120.0
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Public Private
BBVA Research – Mexico Economic Outlook 4Q18 / 9
Monthly Private
Consumption Indicator(Index 2013/01 = 100)
Formal employment(YoY%)
Private consumption remained buoyant in 3Q18
Source: BBVA Research / INEGI
Total formal payroll(Index 2013/01 = 100)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1 0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
85
90
95
100
105
110
115
120
125
130
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Total Domestic Goods Imported Goods Services
BBVA Research – Mexico Economic Outlook 4Q18 / 10
Workers by income level (Minimum wage intervals, %)
Minimum Annual Wage(Constant 2017 prices, USD PPP)
The increase in the legal minimum wage favours recovery of lowest-
paid workers’ purchasing power
Source: BBVA Research / INEGI
Minimum Annual Wage(Constant 2017 prices, USD PPP;
index 2000 = 100)
We do not foresee inflationary pressures, given the small percentage of workers in the
formal economy on the minimum wage (3.3%) and the lack of domino effect on those
earning more than this. Nor do we expect any reduction in employment
16.2%
28.4%
18.1%
12.9%
4.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
1T
200
5
3T
200
5
1T
200
6
3T
200
6
1T
200
7
3T
200
7
1T
200
8
3T
200
8
1T
200
9
3T
200
9
1T
201
0
3T
201
0
1T
201
1
3T
201
1
1T
201
2
3T
201
2
1T
201
3
3T
201
3
1T
201
4
3T
201
4
1T
201
5
3T
201
5
1T
201
6
3T
201
6
1T
201
7
3T
201
7
1T
201
8
(0,1] (1,2] (2,3] (3,5] 5<
0
50
100
150
200
250
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Mexico Costa Rica Colombia Chile Brazil
0
5,000
10,000
15,000
20,000
25,000
Lu
xem
bo
urg
Neth
erla
nds
Austr
alia
Germ
any
Belg
ium
Fra
nce
New
Ze
ala
nd
Ire
lan
d
UK
Can
ada
Kore
a
Spa
in
US
Slo
venia
Isra
el
Port
uga
l
Pola
nd
Tu
rkey
Gre
ece
Hun
gary
Slo
vak
Rep
.
Cze
ch R
ep.
Esto
nia
Lithu
ania
Costa
Ric
a
La
tvia
Colo
mb
ia
Chile
Bra
zil
Russi
an F
ed.
Mexi
co
BBVA Research – Mexico Economic Outlook 4Q18 / 11
Manufacturing exports(Index 2013/01 = 100)
Mexico and US, manufacturing exports(YoY%, moving 6-month average, Mexico 6-month lag)
Exports remain dynamic, and will continue to be driven by the
strength of the US manufacturing sector
Source: BBVA Research / INEGI
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
170.0
2012/0
1
2013/0
1
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Total Automotive Rest
30
35
40
45
50
55
60
65
70
75
80
-6
-4
-2
0
2
4
6
8
10
12
2014/0
1
2015/0
1
2016/0
1
2017/0
1
2018/0
1
Mexican Non-Oil Exports
ISM Manufacturing Production Index (right axis)
BBVA Research – Mexico Economic Outlook 4Q18 / 12
03Downward rigidity of core
inflation and restrictive stance of
Banxico (Banco de México, the
central bank)
BBVA Research – Mexico Economic Outlook 4Q18 / 13
Headline and core inflation(YoY % change)
Headline and energy inflation(YoY % change)
Fall in headline inflation in 4Q18 as we foresaw, although at a slower pace
than expected, due to recent pressure on agricultural prices
Source: BBVA Research / INEGI
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Jan-1
6
Apr-
16
Jul-16
Oct-
16
Jan-1
7
Apr-
17
Jul-17
Oct-
17
Jan-1
8
Apr-
18
Jul-18
Oct-
18
Headline Core
-5.0
0.0
5.0
10.0
15.0
20.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Jan-1
6
Apr-
16
Jul-16
Oct-
16
Ja
n-1
7
Apr-
17
Jul-17
Oct-
17
Ja
n-1
8
Apr-
18
Jul-18
Oct-
18
Headline Energy
BBVA Research – Mexico Economic Outlook 4Q18 / 14
Core inflation breakdown(YoY % change)
Core goods inflation breakdown(YoY % change)
Core inflation stickiness on food core goods and services other than
education and housing
Source: BBVA Research / INEGI
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Jan-1
6
Apr-
16
Jul-16
Oct-
16
Jan-1
7
Apr-
17
Jul-17
Oct-
17
Jan-1
8
Apr-
18
Jul-18
Oct-
18
Core Goods Services
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Jan-1
6
Apr-
16
Jul-16
Oct-
16
Jan-1
7
Apr-
17
Jul-17
Oct-
17
Jan-1
8
Apr-
18
Jul-18
Oct-
18
Core goods Non-food Food
BBVA Research – Mexico Economic Outlook 4Q18 / 15
Headline inflation and trend(Chge. % YoY)
Core inflation and trend(Chge. % YoY)
In the short term we expect headline inflation to fall more markedly
than core inflation
Source: BBVA Research / INEGI
0
1
2
3
4
5
6
7
8
9
10
Ja
n-1
6
Mar-
16
May-1
6
Jul-16
Sep
-16
No
v-1
6
Ja
n-1
7
Mar-
17
May-1
7
Ju
l-17
Sep
-17
No
v-1
7
Jan-1
8
Mar-
18
May-1
8
Jul-18
Sep
-18
No
v-1
8
Actual Trend*
0
1
2
3
4
5
6
7
Jan-1
6
Mar-
16
May-1
6
Ju
l-16
Sep
-16
No
v-1
6
Ja
n-1
7
Mar-
17
May-1
7
Jul-17
Sep
-17
No
v-1
7
Jan-1
8
Mar-
18
May-1
8
Ju
l-18
Sep
-18
No
v-1
8
Actual Trend*
BBVA Research – Mexico Economic Outlook 4Q18 / 16
Risk-adjusted carry trade(%)
Market-based long-term inflation expectations
and exchange rate (% and pesos to the dollar)
We expect Banxico to increase its base rate by 25 bps to 8.25% in
December, since risks for inflation continue to be biased upwards
Source: BBVA Research / INEGI Source: BBVA Research / Bloomberg
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Ja
n-1
6
Apr-
16
Jul-16
Oct-
16
Jan-1
7
Apr-
17
Jul-17
Oct-
17
Ja
n-1
8
Apr-
18
Jul-18
Oct-
18
MXN EM average
2.5
3.0
3.5
4.0
4.5
5.0
5.5
17.0
17.5
18.0
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
Jan-1
6
Mar-
16
May-1
6
Jul-16
Sep
-16
No
v-1
6
Jan-1
7
Mar-
17
May-1
7
Jul-17
Sep
-17
No
v-1
7
Jan-1
8
Mar-
18
May-1
8
Jul-18
Sep
-18
No
v-1
8
ER (lhs) 10-year breakeven inflation rate (rs)
BBVA Research – Mexico Economic Outlook 4Q18 / 17
Outlook for the monetary policy rate(Nominal, %)
Ex ante real monetary policy rate*(Chge. % YoY)
For 2019 we foresee the rate being held steady in 1H and cut by 50
bps to 7.75% in 2H
Source: BBVA Research / Banxico
* Own calculations based on 12-month inflation expectations from the Banxico analysts’ survey
and using our inflation expectations for projected data
Source: BBVA Research / INEGI / Banxico
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Jan-1
6
Apr-
16
Jul-16
Oct-
16
Jan-1
7
Apr-
17
Jul-17
Oct-
17
Jan-1
8
Apr-
18
Jul-18
Oct-
18
Jan-1
9
Apr-
19
Jul-19
Oct-
19
Observada Prevista
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-1
5
Apr-
15
Jul-15
Oct-
15
Jan-1
6
Apr-
16
Ju
l-16
Oct-
16
Ja
n-1
7
Apr-
17
Ju
l-17
Oct-
17
Ja
n-1
8
Apr-
18
Ju
l-18
Oct-
18
Ja
n-1
9
Apr-
19
Jul-19
Oct-
19
Actual Forecast
BBVA Research – Mexico Economic Outlook 4Q18 / 18
042019 public accounts and
budget
BBVA Research – Mexico Economic Outlook 4Q18 / 19
Total public sector budget revenue showed a real YoY decrease of
3.1% in the period January to October 2018
Stripping out Banxico’s Operating
Surplus from the year-on-year
comparison, total public revenues
would have registered a real
increase of 5.1% in the first ten
months of 2018
Oil revenues showed real annual
growth of 11.1% in the period
VAT contributed 2.0 percentage
points to the real annual variation
in tax revenues in the first ten
months of 2018, but this was
offset by the negative contribution
of gasoline and diesel tax of 1.8
percentage points.
Public sector budget revenues and
components in the period Jan. to Oct. 2018(real annual change %)
Source: BBVA Research based on data from SHCP
-3.1
1.9
-24.6
5.1 3.9
11.1
-5.9
-30
-25
-20
-15
-10
-5
0
5
10
15
Tota
l
Tax r
evenue
No
n-t
ax r
even
ue
Org
an
izations a
nd fir
ms
under
budgeta
ry c
ontr
ol
Sta
te-o
wned p
roductive
ente
rprise
s
Oil
revenue
No
n-o
il re
venue
BBVA Research – Mexico Economic Outlook 4Q18 / 20
Total net spending showed a real annual increase of 5.2% in the
period January to October 2018
Programmable and non-
programmable expenditure each
made similar contributions of 2.6
percentage points to the increase
in total spending in the period
January to October 2018.
Current expenditure showed a
real annual increase of 5.5% in
the ten-month period.
The financial cost of public debt
contributed 4.3 pp to the 10.1%
growth in non-programmable
spending in the same period.
Public sector paid net expenditure and
components in the period Jan. to Oct. 2018(real annual change %)
Source: BBVA Research based on data from SHCP
(Secretariat of Finance and Public Credit)
5.2 3.5 5.5
-4.8
10.1 2.812.3
179.3
-50
0
50
100
150
200
Tota
l
Dis
cre
tionary
spen
din
g
Cu
rrent spen
din
g
Ca
pital spendin
g
No
n-d
iscre
tionary
spe
ndin
g
Re
venue s
haring w
/ sta
tes
De
bt serv
ice
De
bt fr
om
pa
st fiscal years
BBVA Research – Mexico Economic Outlook 4Q18 / 21
The federal government reduced its commitment to fiscal
consolidation in January-October 2018
Stripping out financial investment,
federal contributions to the states,
public pensions and financial cost,
the real annual increase in
spending would be 7.3% in the
first ten months of 2018.
The pattern of this limited
measure of expenditure shows
that the federal government
reduced its fiscal consolidation
efforts in the period.
Public spending indicators in
January-October 2018 (real annual change %)
Source: BBVA Research based on data from SHCP
5.2
6.77.4
8.07.3
0
1
2
3
4
5
6
7
8
9
Tota
l net sp
endin
g
W/o
fin
ancia
l in
vestm
ent
W/o
fin
. in
ve
st. a
nd r
ev.
sh
ar.
W/o
fin
. in
vest., re
v. shar.
and p
en.
W/o
fin
. in
vest., re
v. shar.
,pen. a
nd d
ebt serv
ice
BBVA Research – Mexico Economic Outlook 4Q18 / 22
The federal government looks set to reach its target primary surplus
of 0.8% of GDP in 2018
The primary surplus in January-
October 2018 was largely due to
the balances of the IMSS and the
ISSSTE. (private and public
sector health and social services
institutions, respectively)
The primary surplus in January-
October 2018 shows 85%
attainment of the target of 0.8% of
GDP for 2018.
Primary balance and components in
January-October 2018(MXN billions)
Source: BBVA Research based on data from SHCP
188.1
160.3
16.8
132.7
10.8
0
20
40
60
80
100
120
140
160
180
200
2018 p
rim
ary
ba
lance ta
rget
Prim
ary
bala
nce
Fede
ral go
vern
ment
Org
. a
nd e
nte
rprises
Int. u
nder
indirect contr
ol
BBVA Research – Mexico Economic Outlook 4Q18 / 23
We expect public debt as a % of GDP to increase marginally in 2018
and hold steady in 2019
The depreciation of the peso seen
in the fourth quarter of the year
will cause the SHRFSP (stock of
public debt) as a % of GDP to
increase from 46.0% in 2017 to
46.2% in 2018.
We expect this broad measure of
public debt to remain stable in
2019 at around 46.6%.
Historical balance of public sector borrowing
requirements(% of GDP)
Source: BBVA Research based on data from SHCP
48.7
46.046.2
46.6
20
25
30
35
40
45
50
55
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
BBVA Research forecasts
for 2018-2019
BBVA Research – Mexico Economic Outlook 4Q18 / 24
The federal government passes its first big test by basing its 2019
fiscal budget on reasonable economic assumptions
The fiscal package is solid in
macroeconomic terms, but it
introduces some distortions at
microeconomic level.
It is based in reasonable
economic assumptions in line with
those of the market
Revenue and expenditure
projections are conservative.
As we expected, market reaction
has been slightly positive.
Economic assumptions for the 2019 fiscal
budget
Source: BBVA Research based on data from SHCP
2019
GDP
YoY % real growth (interval) 1.5 - 2.5
Point forecast 2.0
Nominal (thousands of millions of pesos) 24,942.1
Deflator 3.9%
Inflation 3.4%
Nominal exchange rate
End of period 20.0
Average 20.0
Nominal interest rate
End of period 8.30%
Average 8.30%
Current account
Millions of USD -27,326
% of GDP -2.2
Crude oil
Average price (USD/barrel) 55
Average production (mbd) 1,847
Average exports (mbd) 1,016
BBVA Research – Mexico Economic Outlook 4Q18 / 25
Lower economic growth could translate into a smaller primary
surplus if the federal government did not adjust its spending plans
The federal government has set a
target of 1.0% of GDP for the
primary surplus in 2019.
However, lower economic growth
could reduce the primary surplus
through its impact on tax
revenues.
Also, in an adverse economic
scenario, the federal government
would have to opt to attain its
fiscal target by reducing approved
expenditure.
Economic growth and primary balance (change % YoY and % of GDP)
Source: BBVA Research based on data from SHCP
2.0
1.8
1.6
1.4
1.2
1.01.0
0.8
0.6
0.3
0.1
-0.1
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Real GDP growth Primary balance
BBVA Research – Mexico Economic Outlook 4Q18 / 26
Collection of IEPS excise tax on fuel will have to increase by 42% in
real annual terms for tax revenues to grow by 3.8%
The freezing of domestic real
prices of gasoline and diesel for
next year, together with the stable
or lower international prices of
these fuels should help to
increase fuel tax revenues, but
uncertainty persists as to whether
this objective will be attained.
As for the tax cuts in
municipalities along the border
with the US, this is a serious
political mistake, which will lead to
reduced tax revenues and
significant distortions.
Tax revenues with and without IEPS excise tax
on fuel(real % YoY change)
Source: BBVA Research based on data from SHCP
1.9
3.83.9
1.4
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
January-October 2018 2019
Tax revenue Tax revenue w/o fuel taxes
BBVA Research – Mexico Economic Outlook 4Q18 / 27
05External accounts
BBVA Research – Mexico Economic Outlook 4Q18 / 28
The current account deficit fell marginally in the first nine months of 2018 relative
to the same period of 2017; we estimate that it will end the year at 2.0% of GDP
The current account deficit fell to
US$17,020 million in the first nine
months of 2018 from US$17,151
million in the same period of 2017
This is explained mainly by: i) the
increased surplus in the balance
of secondary revenues and ii) the
increased surplus in the balance
of non-oil goods
However, the deficit in oil and
petroleum products was
US$16,323 million in the nine
months the end of 3Q18 as
opposed to US$13,263 million in
the same period of 2017.
Current account(US$ million)
Source: BBVA Research based on Banxico figures
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
BBVA Research – Mexico Economic Outlook 4Q18 / 29
The surplus in the agriculture and livestock sector kept the overall trade
balance of non-oil goods positive in the nine-month period
The trade deficit increased to
US$10,348 million in the first nine
months of 2018, from US$9,116
million in the same period of 2017.
This was due mainly to the
increased deficit in the trade
surplus for oil and petroleum
products (US$16,323 million in
January-September 2018,
compared with US$13,263 million
in the same period of 2017)
We expect the trade deficit for
2018 to be US$14 billion,
equivalent to 1.2% of GDP
Trade balance and principal components(US$ million)
Source: BBVA Research based on INEGI data
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
Manufacturing Oil sector Others Trade balance
BBVA Research – Mexico Economic Outlook 4Q18 / 30
06Domestic assets are being
affected by the new
administration’s decisions
BBVA Research – Mexico Economic Outlook 4Q18 / 31
Currency depreciation deriving from the uncertainty generated by the
new administration’s decisions
The peso was the currency that
depreciated most in 4Q (6.93%).
The responsible budget will limit
the weakness in the next few
weeks, but the risks remain
Exchange rate(Pesos per dollar)
Source: BBVA Research based on Bloomberg data
17.5
18.0
18.5
19.0
19.5
20.0
20.5
21.0
Ma
r-1
8
Ma
r-1
8
Ma
r-1
8
Apr-
18
Apr-
18
Ma
y-18
Ma
y-18
Jun-1
8
Jun-1
8
Jul-1
8
Jul-1
8
Aug
-18
Aug
-18
Aug
-18
Sep
-18
Sep
-18
Oct-
18
Oct-
18
Nov-1
8
Nov-1
8
Dec-1
8
Dec-1
8
intentions on NAFTA preliminary agreement
Tariffs on steel & aluminum
Elections
NAIM Cancellation
Volatility EM
PEMEX outlook downgrade
Proposal on banking comissions
Budget
BBVA Research – Mexico Economic Outlook 4Q18 / 32
Sovereign risk [5-year CDS spread] (Index January 2018 = 100)
Sovereign risk [5-year CDS spread] at 17
December 2018 (basis points)
Mexico’s sovereign risk is trading at similar levels to those of
countries rated two notches lower
Source: BBVA Research based on Bloomberg data
70
80
90
100
110
120
130
140
150
Dec-1
7
Jan-1
8
Fe
b-1
8
Ma
r-1
8
Ma
r-1
8
Apr-
18
Ma
y-18
Ma
y-18
Jun-1
8
Jul-1
8
Jul-1
8
Aug
-18
Sep
-18
Sep
-18
Oct-
18
Nov-1
8
Thailand Mexico Peru
Panama Colombia Philippines
BBB
BBB+
BBB
BBB+
BBB+
BBB-
BBB-
BBB+BBB-
BBB BBB+
BBB
BBB+
0
20
40
60
80
100
120
140
160
180
Russi
a
Me
xico
Colo
mbia
Peru
Phili
ppin
es
Pan
am
a
Th
aila
nd
BBVA Research – Mexico Economic Outlook 4Q18 / 33
Government 10-year interest rates, USA
and Mexico (%)
Government bond yield curve(%)
Increased sovereign risk and more restrictive monetary policy lead
to higher long-term interest rates
Source: BBVA Research based on Bloomberg data
Even though the budget had an effect on the fall in yields, the level attained in the
ten-year range is the highest since 2009
2.8
2.9
2.9
3.0
3.0
3.1
3.1
3.2
3.2
3.3
3.3
7.55
7.75
7.95
8.15
8.35
8.55
8.75
8.95
9.15
9.35
Jul-1
8
Jul-1
8
Jul-1
8
Aug
-18
Aug
-18
Sep
-18
Sep
-18
Oct-
18
Oct-
18
Nov-1
8
Nov-1
8
Dec-1
8
Dec-1
8
M10 (LHS) T10 (RHS)
EM turmoi lFi tch downgrades
PEMEX
NAIM cancellation
Budget
7.8
8.0
8.2
8.4
8.6
8.8
9.0
9.2
9.4
3Y 5Y 10Y 20Y
Oct 12 Oct 26 Oct 29 Dic 17 Dic 19
NAIM cancellation
Budget
BBVA Research – Mexico Economic Outlook 4Q18 / 34
Monthly change in foreigners’
holdings of bonds(US$ millions)
Holdings of CETES (Federal Treasury
certificates) and M-bonds by foreigners (% of total)
Despite the uncertainty, foreigners are maintaining their positions in
medium- and long-term bonds
Source: BBVA Research based on Bloomberg data
0
10
20
30
40
50
60
70
Ma
y-06
Nov-0
6
Ma
y-07
Nov-0
7
Ma
y-08
Nov-0
8
Ma
y-09
Nov-0
9
Ma
y-10
Nov-1
0
Ma
y-11
Nov-1
1
Ma
y-12
Nov-1
2
Ma
y-13
Nov-1
3
Ma
y-14
Nov-1
4
Ma
y-1
5
Nov-1
5
Ma
y-16
Nov-1
6
Ma
y-1
7
Nov-1
7
Ma
y-18
Nov-1
8
CETES MBonds
QE3
QE2& WGBI
Tapering
-2000
-1500
-1000
-500
0
500
1000
1500
2000
Jan-1
8
Fe
b-1
8
Ma
r-1
8
Apr-
18
Ma
y-1
8
Jun-1
8
Jul-1
8
Aug
-18
Sep
-18
Oct-
18
Nov-1
8
BBVA Research – Mexico Economic Outlook 4Q18 / 35
Disclaimer
This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) BBVA Research and BBVA
Bancomer S. A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer on behalf of itself and is
provided for information purposes only. The information, opinions, estimates and forecasts contained
herein refer to the specific date and are subject to changes without notice due to market fluctuations. The
information, opinions, estimates and forecasts contained in this document are based upon information
available to the public that has been obtained from sources considered to be reliable. However, such
information has not been independently verified by BBVA Bancomer, and therefore no warranty, either
express or implicit, is given regarding its accuracy, integrity or correctness. This document is not an offer to
sell or a solicitation to acquire or dispose of an interest in securities.
BBVA Research – Mexico Economic Outlook 4Q18 / 36
Mexico
Economic Outlook
Fourth quarter 2018